Verizon (VZ) this morning announced that it will use a technology called LTE, or Long Term Evolution, for its 4G data and video networks, and not a competing Qualcomm (QCOM) technology called UMB, or Ultra Mobile Broadband. Qualcomm bought the UMB standard as part of its August 2005 acquisition of Flarion Technologies. The LTE technology was developed by the Third Generation Partnership Project (3GPP) standards organization. Both of those technologies compete with WiMax, which Sprint (S) and Clearwire (CLWR) are using to build out new networks.
Verizon says it and Vodafone (VOD) - the co-owners of Verizon Wireless - “have a coordinated trial plan” for LTE that begins next year. Trial suppliers include Alcatel-Lucent (ALU), Ericsson (ERIC), Motorola (MOT), Nokia-Siemens (NOK) and Nortel (NT).
Responding to the news, Lehman’s Tim Luke cautioned
in a note this morning that even though it was widely expected that
Verizon would choose LTE for 4G rather than UMB, the announcement has
the potential to impact sentiment toward Qualcomm. Luke says
significant capital spending on building a 4G network is not exepected
until 2010. He also notes that the LTE decision follows the Verizon
initiative this week to provide open access to its networks to handset
makers and content providers.
Stifel Nicolaus analyst Cody Acree says that for
investors, the question is this: “Will QCOM be able seamlessly extend
its IP model into 4G, or will litigation be necessary to establish a
royalty model that may create volatility?” Acree has a Hold rating on
the stock. “Our hesitancy,” he explains, “is the uncertainty of timing
as full OFDM 4G royalties may require extensive litigation that may
dirsupt earnings predictability.”
Qualcomm Thursday is down 9 cents at $41.40.
